The Securities and Exchange Commission said Tuesday that Wedbush Securities will pay more than $8.1 million to settle charges for improper handling of “pre-released” American depositary receipts, or ADRs.
The SEC’s order finds that Wedbush improperly obtained pre-released ADRs from depositary banks when Wedbush should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.
“Such practices resulted in inflating the total number of a foreign issuer’s tradeable securities, which, in turn, resulted in abusive practices such as inappropriate short selling and dividend arbitrage,” the SEC said.
Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, said that the agency charges that Wedbush “facilitated the issuance of ADRs that were not backed by ordinary shares. As this investigation has shown, Wedbush was one of numerous market participants that should have known its actions left the ADR markets ripe for abuse.”
The SEC said that the action against Wedbush is the agency’s 11th action against a bank or broker resulting from the SEC’s ongoing investigation into abusive ADR pre-release practices, which, thus far, has resulted in monetary settlements exceeding $422 million.
ADRs, which are U.S. securities that represent foreign shares of a foreign company, require a corresponding number of foreign shares to be held in custody at a depositary bank.